When debt is used wisely, it can be a great addition for your books. Debt is a real four-letter word for numerous small businesses – although lately, it hasn’t really mattered since lenders have been big scrooges when it comes to extending any sort of credit.
However, recently the purse strings appear to be loosening. Some experts say that going into debt sometimes can be a smart decision for numerous business, as long as it is done in the right situations. There are a number indicators that show that small-business credit appears to be on the rise. The lending capacities of banks are expanding at a higher rate than has been seen in quite some time. This creates a lot of opportunity to obtain finance when it was once quite tough.
Get a good deal on debt
Cost is one of the obvious attractive features with taking on debt. Interest rates have reached rock bottom, which makes the expense of borrowing money more affordable for both small businesses borrowing for the first time as well as those who are wanting to get their existing debt restructured.
Given the fact that interest rates are currently at an all-time low, in real terms, that is making debt less expensive. The bottom line of a majority of businesses can be impacted very quickly through refinancing existing obligations at lower costs.
However, low interest rates alone shouldn’t cause a business to rush to the bank for a business loan. Businesses still need to be weary of taking debt on in the hope of righting a struggling business. Although a cash infusion might provide a short-term boost to a business, the revenue that follows might end up being insufficient to make all repayment obligations. The right conditions for taking on debt typically should include having a healthy business that still appeals to a bank’s view of taking on prudent risk, the prospect of continued growth is good, and there are positive trailing trends.
Banks are also not turning a blind eye when it comes to small businesses seek debt in order to stabilize their volatile finances. Lenders might be more generous these days than they were in the recent past, but the most attractive candidates for financing are still those businesses that have plans for growth and a solid finances history rather than companies looking to patch their financial leaks.
Craig Calafati, Celtic Bank’s national sales vice president, says that banks are searching for a business that is well managed with proof of this through adapting to the evolving business trends and challenges. That means that they supervise their expenditures closely, have been able to maintain necessary liquidity, and have taken other measures that show they understand the current business climate that they are operating in.
Is it a good time right now to get in debt?
In contrast to recent years, for small businesses right now it is a buyer’s market when it comes to debt. Make sure you take the time to aggressively shop for and compare interest rates, loan costs, and other terms. Small business should begin their search with community-based local banks. They may have especially attractive loan terms, and the the lenders are more likely to have an interest in backing locally based small businesses.
However, don’t get too overzealous. Minimize your debt, shop around to find the deal that is most affordable and be sure that any debt you take on is going to be manageable for your business.